"Men lie, women lie, numbers don't." -Jay Z

The Zig-Zag Theorem: Playing Cuban-ball in the Startup World

Bill Simmons was the first one really to point out the zig-zag theory in a piece on Grantland. In the NBA, you have to have an elite, superstar player to win a championship. Problem is, there are only about 12-15 truly elite players in the league, and they belong to 11 of the 30 teams in the league. What happens to the other 2/3rd of the league? What can you do if you don’t have a superstar?

There are two options. One is to blow it all up and rebuild. Many teams opt for this method in the hopes that they will get a chance to draft near the top and have a shot at a potential superstar. This method involves a fair bit of luck, and you still need to be very good with roster management to build around that superstar. Very few teams recently have pulled it off. Generically speaking, the second approach is to build a team with mid-level, not-quite-elite-but-not-that-bad assets while trying to target other teams’ superstars. Daryl Morey of the Houston Rockets did this. He kept stockpiling assets (which by themselves would not give you a successful team), and then masterfully dealt and parlayed those assets into two elite players.

Cuban does this a little differently. He builds sustainable teams out of mid-level assets. See, so many teams in the NBA today believe that being simply a good, not great team is a bad thing. If they aren’t title contenders, they try to be a team that rebuilds from the bottom. They take the first approach. In that case, if so many teams play off that same strategy (this is the “zig”), then by “zagging” the other way, you can exploit inefficiencies just by thinking differently. In technical jargon, there might be hidden value in targeting contracts for quality starters ranging from $7.5 million to $10 million. Due to prevailing trains of thought, there isn’t a true market for those players, so you can get them for 60 cents on the dollar. Boom. You build a cheap, playoff-caliber team with financial flexibility. That means you can continue to look for a free agent superstar while remaining a competitive, playoff-bound, fun outfit. Isn’t that way more preferable than being a miserable, hard-to-watch team that’s betting a lot of its fortunes on luck, year in, year out (looking at you Cavaliers)?

“Wherever I see people doing something the way it’s always been done, the way it’s ‘supposed’ to be done, following the same old trends, well, that’s just a big red flag to me to look somewhere else.”

So now for the fun part, how does this lesson translate to the entrepreneurial world? In broad strokes, Mark Cuban’s approach is really just about finding and exploiting inefficiencies created by current trends.

Take the rise of Twitter and Instagram. For a while, social media as dictated by MySpace and then Facebook was all about connecting people to each other and allowing them to pack as much information and content into their online interactions as possible. More was better. Then, a funny thing happened. A lot of social media companies entered the market. Yet many of them tried to reinvent the wheel by pursuing this content-heavy style and failed. The ones that succeeded? Platforms that, contrary to the popular thought, advocated a minimalistic and more focused approach. Twitter at the core is a micro-blogging platform. As bad analogies go, think of it as Facebook with only status updates. Instagram is like Facebook except you can only post pictures. And you don’t get to group them into albums. These social media sites succeeded by being what nobody else wanted to be, but more importantly first realizing the value of what nobody else wanted to be. I mean, this is basically how disruption works.

The Leading Indicator: As Facebook declines, Twitter is now more popular among teenagers, and Instagram is on a rapid rise.

Not only is this a valuable lesson in company and concept development, but there is also something to be learned for team building. The importance of having an A-team cannot be understated (and is probably a topic for another day). Neither can frugality as a startup. But how can you get a high quality team supporting you for 60 cents on the dollar (initially, at least)? By finding value in places people generally neglect. When my old boss gave me the origin story of the two star members of his team, that’s where I learned this lesson. People in business only think about forming a group with seasoned executives, technical experts, or people with business experience. Who cares about somebody from the opera house or the local gym? Yet, turns out that to be a good receptionist at this gym, you have to be a skilled and charismatic communicator. Sounds like a salesman in the making, doesn’t it? To be the focal point of regular productions at this opera house, you have to have a strong memory to gain mastery over long scripts and an innate understanding of the audience. If I recall, having the capacity to store and process a vast array of knowledge about a specific field and the ability to be in tune with the customer are two very important skills for a good businessman. With a little coaching, the gym receptionist and opera performer turned into those two of the best performers on my boss’s team.

Whether you like the Mavericks or not, whether you like Mark Cuban or not, it’s hard to disagree with the results. Ball don’t lie. That’s how you play Cuban-ball as an entrepreneur.